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Price increases and lower specs on the cards for British buyers as retailers and brands look to protect margins

 

Imports of bicycles to the UK fell sharply during 2016, in what could be an early sign of the effects of last June’s referendum vote to leave the European Union on the cycle trade - and the potential impact on prices for British consumers.

The figures, which come from Her Majesty’s Revenue & Customs (HMRC), reveal that unit imports fell by nearly 11 per cent during the year to 3.1 million, down from 3.5 million in 2015.

In terms of value, imports held up rather better, falling 1.5 per cent from £389 million to £383 million, which Bike Europe – which describes the decline in volume as “unexpected” – says suggests that premium products are outperforming the market as a whole.

It’s too early to attribute the decline to the prospect of the country leaving the EU, with six months left of the year when the referendum happened and distributors and retailers having already placed orders for bikes that would have arrived in the second half of the year and businesses typically hedging against currency movements.

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However, there have been indications from within the trade that market conditions are difficult, and with Prime Minister Theresa May planning next week to trigger Article 50 to begin the formal process of leaving the world’s biggest trading bloc and apparently set on a ‘Hard Brexit’ tough times could lie ahead.

Evans Cycles warned in a blog post on its website earlier this month that while currency hedging had offset some of the potential price rise caused by the fall in sterling against the dollar in the aftermath of June’s vote, future increases are inevitable.

The retailer, which has more than 60 branches around the country, also pointed out something we have already flagged up here at road.cc – that some brands are re-specifying their bikes, so while a particular model may appear not to have changed in price, it will now come with cheaper components as they look to keep offering products at specific key price points.

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The blog post on the Evans Cycles site also highlights some other factors that will have affected prices to UK consumers.

Those include the strengthening of the Japanese Yen against the Dollar at a time Sterling was weakening against the US currency – increasing the cost of Shimano-equipped bikes – and the effect of tariffs and taxes which, because they are added as a percentage to a base price that has itself risen, will increase further the final price.

Tandem Group, owner of brands including Dawes and Claud Butler, will not report its 2016 financial results until next month, but it said in a recent trading statement that it expects revenue to be down 26 per cent on the previous year within its bicycles and mobility division.

Factors besides the referendum result are in play here – notably, a restructuring of the division, which included making some staff redundant, and the absence of promotional activity during the period compared to the prior year.

But the company added that “margins were under pressure during the second half of the year as a result of sterling weakness and increased import duty on some of our products” and that “to compensate for this we implemented a price increase in the latter part of the year,” it had “negotiated better buying prices with suppliers and where this could not be achieved, re-sourced to new factories.”

Meanwhile Halfords, the UK’s largest bike retailer, cautioned in its interim results statement last November: “As an importer of goods, the Sterling devaluation brings input cost headwinds for the Group.

“However we do have a number of mitigation opportunities including working with suppliers, price, cost/process efficiencies and alternative product sourcing,” Halfords added.

All of which means that the price of bicycles to consumers in the UK is likely to continue to head upwards, to which needs to be added the current uncertainty over what our future trading relationship with fellow EU member states and other countries around the world will be.

There’s the wider economic picture to look at, too. Wage growth is low and inflation on the rise, chiefly as a result of those exchange rate fluctuations, which could lead to the Bank of England increasing its base rate from the current historically low level.

To the average buyer, that’s likely to mean less money to spend on your next bicycle – assuming you don’t forgo the purchase altogether, and for retailers and distributors alike, that will mean fewer units sold and greater pressure on margins.

And as for Bike Europe's observation that the higher end of the market has proved more resilient during 2016, it's anyone's guess as to whether that will be sustained as highly-paid jobs in financial services and other industries head abroad in anticipation of the UK severing ties with the EU.

It’s not bad news for everyone in the industry, however – as a UK-based manufacturer, Brompton, which is growing sales rapidly in markets such as the United States and Far East, benefits from Sterling’s weakness.

In January, CEO Will Butler-Adams said that the company, which has invested in a new factory in Greenford to significantly ramp up capacity and which exports 80 per cent of the folding bikes it makes, had been able to reduce prices in overseas markets by 7 per cent since the referendum, making it more competitive abroad.

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Simon has been news editor at road.cc since 2009, reporting on 10 editions and counting of pro cycling’s biggest races such as the Tour de France, stories on issues including infrastructure and campaigning, and interviewing some of the biggest names in cycling. A law and languages graduate, published translator and former retail analyst, his background has proved invaluable in reporting on issues as diverse as cycling-related court cases, anti-doping investigations, and the bike industry. He splits his time between London and Cambridge, and loves taking his miniature schnauzer Elodie on adventures in the basket of her Elephant Bike.